One area where the two parties of the millionaires and billionaires put in place policies that favor the rich are tax laws. Tax policy has favored the wealthy under both parties, but the Trump-administration has brought this tax corruption to new levels. We need to transform tax policy to build the working class base of the economy, shrink the wealth divide, and confront the climate crisis. An honest analysis of the tax code calls out in stark detail the extreme injustice of the economy in the United States.
The tax system favors the wealthy as low- and middle-income people are hit the hardest while big business and high-income people are subsidized. The most regressive tax of all is the FICA payroll tax at 15.3 percent for Social Security and Medicare. 15.3 percent includes the employer match. But employers include the tax in their labor budgets and it limits what they can pay their workers. The 12.4 percent Social Security share of FICA is outright regressive because it is capped for high-income earners at $128,400 in 2018.
The Trump Tax Favors the Wealthy At The Expense of the Working Class
On December 19, 2017, the Trump Tax Bill passed Congress. It was a gift for big business and the wealthy. It cut tax rates for corporations to 21 percent from 35 percent. It created a new 20 percent deduction for pass-through businesses that is favorable to commercial real estate companies like the Trumps’. It lowered individual tax rates for the wealthy in the top bracket to 37 percent from 39.6. It also helped the super rich by exempting larger inheritances from the estate tax, doubling the thresholds to $11 million for individuals and $22 million for married couples.
The benefits of the Trump law go to the most wealthy people in the United States. The Tax Policy Center reported that the top 0.1 percent would receive an average tax benefit of $193,380 in 2018. And over half of the bill’s total benefits would go to the top 10 percent of earners. The Joint Committee on Taxation, the official congressional scorekeeper, estimates that by 2027, every income group making less than $75,000 would see a net tax increase. JPMorgan Chase, the biggest bank in the country, bragged to its investors that the Trump tax cuts increased its bottom line by $3.7 billion. People know the Trump Tax was for the rich and not them, nearly two-thirds favor its outright repeal.
The Trump tax bill is the opposite direction the country needs to go at a time of record wealth divides when three people have the wealth of half the population. The Trump tax law made inequality worse as it resulted in a record amount being spent to buy back stock –more than $1 trillion – artificially raising stock prices and increasing top management pay and investment earnings.
Demonstrators against the Republican tax reform bill hold a “Peoples Filibuster to Stop Tax Cuts for Billionaires,” protest rally outside the US Capitol on Capitol Hill in Washington, DC, November 30, 2017. / AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Tax Cuts for the Rich Hurt the Economy for Working People
The Trump tax bill has once again demonstrated the failure of supply-side tax cuts for the rich to trickle down to the rest of us as expanded production, more jobs, and higher wages. This trickle-down theory in practice just makes the rich richer. Given capitalism’s endemic tendency to overproduction, more money for the rich is not invested in the real economy of production but in financial maneuvers like stock buy-backs, which simply rearrange and concentrate who owns the real productive assets of the economy. It would be more productive and efficient to tax the rich and invest that money through the public sector in needed programs, like improved Medicare for All, and needed infrastructure and production, like mass transit and clean energy systems.
Nearly 200 Occupy Fort Lauderdale protesters march in the heavy rain in downtown Fort Lauderdale, Fla., Saturday, Oct. 29, 2011. Having started in New York, Occupy Wall Streets demonstrations now take place all across the United States, as protesters speak out against corporate greed and the gap between the rich and the poor. (AP Photo/J Pat Carter)
Growing Economic Inequality
The income gap between the rich and everyone else has been growing markedly, by every major statistical measure, for more than 40 years. As of 2017, the richest 0.1 percent take in 188 times as much income as the bottom 90 percent. Between 1979 and 2007, paycheck income for those in the richest 1 percent and 0.1 percent exploded. Meanwhile, the bottom 90 percent of earners have seen little change in their average income, with just a 22 percent increase from 1979 to 2017. An estimated 43.5 percent of the U.S. population,140 million people, are either poor or low-income, according the the U.S. Bureau of Labor Statistics’ Supplemental Poverty Measure, which is a far more realistic measure of actual living costs compared to the old Official Poverty Line, which simply multiplies the minimum food diet by three.
As bad as income inequality is,wealth inequality is even more pronounced. The wealthiest 5 percent own two-thirds of the nation’s wealth: the top 10 percent owns nearly 80 percent of the nation’s wealth. Over the past three decades, the most affluent U.S. families have added dramatically to their net worth, while those on the bottom have dipped into “negative wealth,” i.e., their debts exceed the value of their assets.
When looked at through a racial lens, the situation is even worse. The median black family, with just over $3,500 net wealth, owns just 2 percent of the net wealth of the median white family at nearly $147,000. The proportion of black families with zero or negative wealth rose by 8.5 percent to 37 percent between 1983 and 2016. The median white family has 41 times more wealth than the median black family and 22 times more wealth than the median Latino family. The U.S. poverty rate for white men is 7.0 percent, while it is 21.4 percent for black women, 18.7 percent for Latinas, and 22.8 percent for Native American women. The low wealth and high poverty in communities of color are not only due to current policy, but the enduring impacts of slavery and racial discrimination and exclusion in the United States since its founding. Major investments and empowerment of communities of color are essential to create economic and racial justice.
The Tax System Should Reduce Inequality
We need a tax plan that takes the opposite approach of the Trump tax plan, and the Obama-era tax plan that preceded it. A February 2019poll, found that 76 percent of registered voters want the wealthiest Americans to pay more. Rather than failing to build the economy by reducing taxes on the wealthy, we need to actually build the economy by creating a strong foundation of purchasing power in the working class by ending poverty and economic insecurity.
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